Orca Energy’s $1.2 Billion Lawsuit Against Tanzania: A Clash of Titans Over Energy Contracts

By Adonis Byemelwa

Orca Energy Group Inc., a Toronto-listed company based in the British Virgin Islands, has unleashed a legal storm by filing a jaw-dropping $1.2 billion lawsuit against the United Republic of Tanzania and the Tanzania Petroleum Development Corporation (TPDC).

 The stakes are high as this dispute could reshape the landscape of Tanzania's energy sector. Orca, through its subsidiaries PanAfrican Energy Tanzania (PAET) and Pan African Energy Corporation Mauritius (PAEM), claims significant breaches of contract and investment agreements.

According to Orca’s widely circulated press release, the dispute revolves around alleged breaches of the Mauritius-Tanzania Bilateral Investment Treaty (BIT), the Production Sharing Agreement (PSA), and the Gas Agreement (GA).

The company argues that TPDC’s rejection of PAET’s proposals for additional gas commercial terms and a new gas sales agreement, despite the expiry of certain PSA provisions, breaches their contractual rights and expectations.

Dr. Bonipace Luhende, the Chief Government Legal Advisor, confirmed receiving notice of the dispute from Orca, as mandated by ICSID procedures. “Both parties have a six-month period to resolve the issue. If this fails, legal proceedings will commence,” he stated.

Energy Deputy Minister Judith Kapinga, when approached by Pan African Visions, indicated that the government is engaged in negotiations with Orca. She expressed confidence that a resolution through dialogue is achievable, reflecting the longstanding working relationship between the government and the company.

“However, if necessary, we will proceed to court, though I don’t anticipate it coming to that,” she remarked.

Kapinga noted that the contract with PAET is set to expire in 2026 and did not provide further details due to ongoing negotiations. She emphasized the importance of maintaining confidentiality during this period.

According to Orca, the conflict arose after TPDC rejected PAET’s requests for an extension of their license in April 2023. Despite repeated appeals by PAET, TPDC failed to act due to legal disputes regarding the continuation of the PSA. The delay and alleged unfounded accusations against PAET led to a breakdown in negotiations.

On April 15, 2024, Tanzania’s Energy Ministry intervened, instructing TPDC to continue producing gas beyond the PPA's deadline, contrary to existing agreements. PAET has challenged this directive, fearing it signifies an imminent threat to its rights over the gas block.

A letter from the Energy Ministry, dated August 5, 2024, requested PAET to propose suitable terms for an interim arrangement to extend gas production. This letter was interpreted by PAET as a threat to seize their assets, prompting them to file a dispute notice on August 7, 2024. PAET believes this letter indicates a risk of asset appropriation if their rights are not respected.

PAET, a significant player in Tanzania's energy sector for over two decades, claims to have invested more than $311 million in the country. It asserts that its contributions include over $725 million to the national revenue and $900 million in cash flow to the Tanzanian government.

The core issue revolves around the Songo Songo development license granted to TPDC in 2001. This agreement, which includes the PSA and GA, was intended for gas production until July 31, 2024, primarily for power generation at Ubungo in Dar es Salaam.

In recent developments, Tanzania resolved a long-standing dispute with Indiana Resources Limited over the Ntaka Hills Nickel Project. The government agreed to pay $90 million to settle the issue, concluding nearly seven years of arbitration at the International Centre for Settlement of Investment Disputes (ICSID). Payments are being made in three phases, with the first $35 million already received.

Similarly, in October 2023, Tanzania settled a dispute with Canada's Winshear Gold Corp by paying $30 million over a contested gold project in southwestern Tanzania, addressing a claim for over Sh250 billion.

As the Tanzanian government faces these financial burdens, it is imperative to reflect on the broader implications of costly legal disputes over flawed contracts. Prof. Anna Tibaijuka has criticized the government’s secretive dealings with external investors, arguing that such contracts often bypass parliamentary scrutiny, leading to long-term financial repercussions.

Firebrand Kisesa MP Luhanga Mpina once declared that with Tanzanian students facing inadequate loans, poor infrastructure, and rising external debts, the government must rethink its investment agreements.

In 2016, Tundu Lissu, then Vice Chairman of Chadema for mainland Tanzania, urged Parliament to tackle future disputes by ramping up transparency in contract negotiations, enforcing rigorous parliamentary oversight, and prioritizing sustainable agreements aligned with national interests. “Proactively addressing these issues can help Tanzania alleviate financial pressures and shift resources to urgent social needs,” Lissu emphasized, advocating for a fairer and more stable economic landscape.